Amber Rudd, the work and Pensions secretary of the United Kingdom, is exploring the possibility of toughening up the laws that are governing those in charge of employee pensions amidst the recent mismanagement scandals at Carillion and BHS.
According to Rudd, company execs could be locked up for a maximum of seven years if they fail to manage employee pension schemes properly.
The plans that were put forward last year for sentences of a maximum of two years have been toughened following a consultation by the Department for Work and Pensions (DWP). Currently, Rudd is pushing for a law making “willful or reckless behaviour” that are related to a pension scheme considered as a criminal offence.
In an article that was written by Rudd in the Sunday Telegraph, she stated: “If you run your company pension into the ground, saddling it with massive, unsustainable debts, we’re coming for you.”
She also said that the measure would target execs who “gamble employees’ futures on risky investments” and those who “chronically mismanage a pension scheme” to the point that it goes under.
Under the new laws, the courts would also have the power to impose unlimited fines for the mismanagement of pensions. However, the measures still require the approval of the parliament.
The said measure was welcomed by the Pensions Regulator. The executive director for frontline regulation, Nicola Parish, said that the powers “would allow us to identify potential problems earlier and take more effective action.”
She added: “The vast majority of scheme sponsors and trustees already do the right thing and we will be helping them further by delivering clearer funding standards and a revised Defined Benefit Code of Practice.”
She continued: “Our new powers will act as a powerful deterrent against the poor treatment of pension schemes and help us in protecting members.
She noted: “We are working closely with government to ensure that the new legislation is effective and works in practice.”
However, the proposal of Rudd was greeted with criticism from other corners of the industry.
The director of policy at Royal London, Steve Webb, said that it is easy to say that companies who pay out large dividends such as BHS or Carillion were reckless with hindsight. However, to put people in jail, a court would have to prove “not with hindsight but that it was reckless at the time.”
Subsequently, he said that it would be very had to show that someone recklessly under-funded their pension scheme, especially because of the fact that “you can guarantee people like Philip Green have very good lawyers.”
He added: “There is a risk that those who failed to do all they could get away scot free.”
He said that Rudd’s proposal “about being seen to do something.”
He noted: “These new laws are more likely to generate headlines than to protect workers’ pensions.”
The announcement makes a pensions bill more feasible in the near future, which could also include legislation on the pensions dashboard, the flagship upcoming project of the DWP, consultation on which was concluded last January.
The head of policy at Hargreaves Lansdown, Tom McPhail, stated: “The long deficit reduction periods we have seen in the past (such as with BHS) are unlikely to be an option if this legislation is passed.”
he added: “We may see developing pressure to improve the funding of defined contribution (DC) pensions too. After all, if wilfully underfunding a defined benefit pension scheme becomes a criminal offence, why not defined contribution schemes too? We know typical contribution rates to these DC schemes aren’t sufficient to fund a decent retirement for many employees.”